Measuring What Matters in Insurance Management

Claim costs change for different reasons. Understanding what’s driving that change is key for pricing and reserving. Loss trend measures how claim costs change from year to year. It reflects shifts like medical inflation, changes in legal behavior, or increased use of high-cost procedures. Loss development tracks how reported claims change over time. A minor injury today might turn into surgery and legal fees months later. Or it might settle for less if there’s subrogation or a favorable investigation outcome. Trend and development are used in both pricing and reserving, but they serve different purposes. In reserving, loss development factors help estimate the ultimate cost of claims. This helps insurers decide how much to set aside for claims that have not yet been paid. In pricing, losses are developed using loss development factors from the reserving analysis. Then, trend is applied to adjust those developed losses to reflect the conditions expected in the future rating period. This helps the insurer decide how much to change rates going forward. The overlap fallacy refers to the mistaken belief that loss development factors and trend factors are measuring the same inflationary changes, leading to a potential double-counting issue. To avoid double counting, trend should only reflect changes that development has not already incorporated. Trend and development are more like stepbrothers than twins. Understanding how they differ allows actuaries to apply them correctly. #actuarialscience #riskmanagement #insurance #careers #themaverickactuary 

Understanding Key Reinsurance Ratios: Reinsurance ratios play a vital role in evaluating the financial health of reinsurers. These ratios provide insights into risk management, claims handling, and profitability. Here are some important ones to consider: 1. Loss Ratio: Measures underwriting profitability by comparing incurred losses to earned premiums. A lower ratio indicates effective risk management. 2. Expense Ratio: Evaluates operational efficiency by comparing underwriting expenses to net premiums earned. A lower ratio signifies optimized processes. 3. Combined Ratio: Combines loss and expense ratios to assess overall underwriting performance. Below 100% indicates profitability. 4. Retention Ratio: Shows the proportion of risks retained compared to those ceded to reinsurers. A higher ratio demonstrates confidence in risk-bearing capacity. 5. Leverage Ratio: Compares debt/liabilities to capital and surplus. A lower ratio indicates a conservative and stable financial position. 6. Loss Reserve Ratio: Assesses reserves' adequacy to cover future claims. A higher ratio indicates a conservative approach to reserving. 7. Solvency Ratio: Measures the ability to meet financial obligations. A higher ratio reflects a strong financial position and resilience. Understanding these ratios helps in informed decision-making, fosters confidence among stakeholders, and supports a sustainable insurance industry. #insuranceindustry #riskmanagement #claims #finance #insurance

*Beyond Claims Settlement Ratio: Why Claims Paid Ratio Matters* When evaluating an insurance company's performance, we often look at the claims settlement ratio. But is it enough? *Limitations of Claims Settlement Ratio:* Only shows the number of claims paid, not the amount Doesn't reveal if a claim is underpaid *Introducing Claims Paid Ratio (CPR): A More Comprehensive Metric* CPR reflects the total amount paid out in a fiscal year versus claims available for processing. This metric provides a more accurate picture of an insurer's claims payment performance. *Why CPR Matters:* Helps policyholders understand the likelihood of receiving fair compensation Enables insurers to identify areas for improvement in their claims processing Fosters transparency and accountability in the insurance industry Let's move beyond claims settlement ratio and adopt a more holistic approach to evaluating insurance companies. Share your thoughts on the importance of Claims Paid Ratio! #insurance #claimssettlemnt #claimspaidratio #transparency #accountability